Russian economic fall hits hard in China's border outpost

MANZHOULI, China — The stream of Russian traders that once filled the streets of this neon-lit border post has dwindled to a trickle, turning Manzhouli from boom town to ghost town.

The traders once poured out of buses each morning and jostled in underground shopping arcades, stuffing Chinese-made goods into bags to sell in their energy-rich homeland.

Now the sharp drop in oil prices and a global financial crisis have sent the Russia economy into a tailspin, and this once-buzzing outpost — emblematic of the improvement in Sino-Russian relations — is suffering a temporary setback.

"In the past, we'd sell one or two fur coats a day," Zhao Dongqiang said, surveying the rabbit and mink coats hanging on racks in his store. "Now we sell one or two a month."

The receding economic tide is part of a larger cycle in Sino-Russian relations, which have vacillated from friendship to acrimony and back to friendship over the past half-century. Now the two nations are at a high point, enjoying a strategic partnership that's brought them closer than at any time in decades, but that's being tested by Russia's resentment at China's growing economic and military strength.

Last month, the two nations signed a $25 billion energy-cooperation agreement, and on paper relations could hardly be better. The two neighbors hold periodic joint military exercises, see eye to eye on issues ranging from Iran to NATO enlargement and speak of a vision to create a "multi-polar world" to temper U.S. domination. They also share strategies to defend against Western charges of human rights abuses at home.

It's an "authoritarian alliance" born of geographic necessity. China shares a longer border with Russia — 2,700 miles — than with any of its other 13 neighbors.

However, the relationship isn't as sturdy as it might appear to be, experts said, and if economic troubles send relations into another downward spiral, that could benefit U.S. efforts to cultivate Chinese cooperation on Afghanistan and economic issues, and Russian help in curbing Iran's nuclear program.

"The Russians feel uncomfortable about the speed of China's rise," said Bobo Lo, the author of a recent book on the Sino-Russian relationship titled "Axis of Convenience: Moscow, Beijing and the New Geopolitics." "The gap between Russia and China is growing ever faster."

The two sides sweep any signs of friction under the rug. In mid-February, a Russian warship fired at least 500 rounds into a Chinese cargo ship off Vladivostok, sinking the Chinese freighter and leaving seven crew members missing, according to newspaper reports in both countries. Beijing and Moscow later silenced the press and provided no further explanation.

Russia remains wary of trade that's weighted overwhelmingly in favor of China, and of China's voracious appetite for the timber, mineral and oil resources of its sparsely populated Far East. A demographic imbalance is an aggravating factor.

"The Russian Far East has 6.6 million people," Lo said. "The neighboring Chinese provinces of Heilongjiang, Liaoning and Jilin have 110 million people."

Semi-arid steppes and grasslands separate this border crossing in the Inner Mongolia Autonomous Region from Irkutsk, among the largest cities in Russia's Siberia.

The camaraderie masks glumness over the sinking ruble — which has lost 35 percent of its value against the U.S. dollar in six months — and shrinking economic output, which have sapped the strength of the Russian traders. Russia, the world's No. 2 energy producer, is reeling from the fall of the price of crude oil to a quarter of its $147-per-barrel high last July.

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"It's very hard in Russia right now," said Viktoria Samarkina, a 37-year-old from the nearby Russian city of Chita who came to work as a waitress in a Russian restaurant in Manzhouli.

The hundreds of rail cars piled high with pine and larch logs don't arrive each day with the same frequency they did last year. Hit by the global crisis, China's furniture industry is buying less wood from Russia, sapping its economy further.

"This crisis has set Russia back at least five years," said Zhou Jingyu, a customs broker in Manzhouli who handles timber shipments across China.

Sino-Russian trade climbed tenfold in a decade to $58 billion last year. Raw materials such as oil and timber provide the bulk of Russian exports, however, while China largely ships machinery, electrical appliances and high-tech goods to Russia.

"Psychologically, it's painful for the Russians," said Yu Bin, a scholar on Sino-Russian relations who writes on the topic for Pacific Forum CSIS, a Honolulu-based policy center.

"They still think that China lags behind them," echoed Cheng Yijun, a scholar on Russia at the Chinese Academy of Social Sciences, a leading research center in Beijing.

Chinese experts said that Russian xenophobia lay not far below the surface in the relationship, leading to exaggerated Russian news reports that millions of Chinese had poured into the Far East when the reality is that maybe 200,000 Chinese live and work in Russia. Most fill niches in the economy that Russian laborers avoid.

"They do work that we Russians don't want to do anymore, mainly construction," said Ivan Piruhovski, a 22-year-old shopper from Chita.

Chita was once within a closed region, a legacy of former tensions in Sino-Russian relations. After China's Mao Zedong came to power in 1949, he and Soviet leader Joseph Stalin established an "unbreakable friendship" based on communist ideals. However, charges and countercharges of deviationism led to a 30-year break in 1960 that even included some military skirmishes along the border. It wasn't until 1989 that the two nations became allies again. In 2004, all outstanding border disputes were resolved.

In this decade, China has been the salvation of Russia's military industries, snapping up fighter aircraft, diesel submarines, destroyers, air defense systems and missiles. Through 2007, China bought $2 billion a year, some 40 percent of Russia's total arms sales.

In the past two years, however, sales have collapsed as China's strengthening military needs less Russian hardware, sometimes copying Russian designs or surpassing them.

Anatoly Isaikin, the head of the state-controlled arms exporter Rosoboronexport, told the newspaper Nezavisimaya Gazeta in early February that Russia's arms sales to China were dropping from 40 percent to 10 percent of its total weapons sales.

Russia remains wary of selling China its most sophisticated hardware, in case relations turn bad again one day. That may have led to the collapse earlier this year of a deal for Russia to sell Sukhoi-33 aircraft carrier-based fighter jets to China.

Russians scoff at any suggestion that they might be lagging behind China.

"Russia will always be stronger," said Alexei Atimov, a burly 27-year-old driver who was visiting Manzhouli. "Our military is much better. I'm not nervous about it."